WellFor more than a decade, Hungary’s Prime Minister Viktor Orbán has waged a battle with the European Union over the democratic rules Brussels expects EU member states to follow. His commitment to “illiberal” Christian democracy has long been a flashpoint. An EU report published earlier this month accused Orbán of turning Hungary into an “electoral autocracy” in which the prime minister has made “deliberate and systematic efforts” to undermine EU values.
Orbán, a gifted populist who built his public popularity by fighting Eurocrats, insists he is simply defending Hungarian traditional values. But he was accused in the report of attacks on press freedom, the independence of judges and courts, academic freedom, minority rights and the rights of asylum seekers. None of this is new, but the report came out at a very tense time.
On September 15, the European Parliament voted overwhelmingly to approve the report, which not only criticized Hungary for undermining democracy and the rule of law, but also the European Commission for failing to force Hungary to change course. Orbán dismissed the report and the vote as a “bad joke”.
For years, the EU has had few good opportunities to force Orbán and his Fidesz party to play by the rules because so many of his potential punitive measures against offending member state governments require unanimous support from other EU members, allowing Orbán to rely on support from fellow populists in Poland who can use the veto to give him cover. But Brussels i can withholds much-needed cash from the EU budget if it can demonstrate that there is a real risk that the funds will be stolen by corrupt officials in the country in question.
On September 18, the EU fired this shot for the first time in its history.
European Commission officially recommended that €7.5 billion in funding for Hungary will be withheld until its government addresses a long list of specific issues. That’s not the only money at stake. The EU’s failure to agree with Hungary on the terms of disbursement of €14.9 billion in grants and loans as part of the COVID Recovery Fund has left Budapest short of cash equivalent to around 8.5% of the country’s GDP. This is a big blow for a small country.
Other member states will vote in November on whether to withhold those funds, and the result will not require unanimity, just a “qualified majority”, a much lower threshold that leaves Orbán unprotected. If the vote is yes, as expected, Budapest will have a month to respond with changes designed to meet EU requirements.
Orbán holds a weak hand. His government is already struggling with high prices, a fluctuating currency and an energy crisis. Headline inflation rose to 15.6% in August, its highest point in 24 years. Prices of basic foods such as milk, bread and poultry have jumped between 40% and 65% in the past year. After an election year surge in spending to support Orbán’s latest victory, Hungary’s budget deficit is now much worse than the government forecast. However, the government bowed to public pressure by taking on an even heavier burden. In particular, it will extend price caps on some food and fuel until the end of the year.
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In addition to the pressure on Hungary’s economy, fears over EU action weighed heavily on the forint, Hungary’s currency. It has fallen 16% against the euro over the past 12 months and 37% against the US dollar. Hungary’s current account deficit doubled from July to August this year.
In short, the writing on the wall is so clear that even Viktor Orbán can read it. He and his party are still very popular at home. He can get away with blaming the EU and the war in Ukraine for Hungary’s economic woes.
But a tough winter looms as Hungary, one of the countries most dependent on Russian energy supplies, scrambles for help. Failure to bring prices under control could begin to erode his support. Hungary needs this money and will have to jump through dozens of hoops to get it. Orbán’s government has already started to fulfill EU requirements. On September 19, she sent an anti-corruption bill to parliament. More such moves are being prepared or will be soon.
More broadly, it is the first salvo in an attempt by EU officials to get much tougher on member state governments that flout the Union’s rules on core values such as the rule of law. Brussels does not want this battle to escalate, but knows other members are watching to see if these new tough measures have teeth. Orbán will try to do as little as possible to unlock the funds his government needs. The EU does not want a crisis that will cause pain to the people of Hungary, but its leaders know that they must send a message that will be accepted across Europe.
The two sides are likely to reach a deal, but it will certainly take time. There will be many devils in many details to be managed. The EU escalation is just the opening salvo of a much longer bureaucratic battle ahead.
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